F6 Ecoz P1 300 Questions

“A” LEVEL ECONOMICS
EXAM PREPARATION
PAPER 1 QUESTIONS BOOKLET
300 QUESTIONS
DIFFERENT TOPICS
Tinofamba nevanofamba
TINOFAMBA NEVANOFAMBA Page 1

1. The basic economic problem is that
A. Resources are limited in supply

B. There is a problem of poverty
C. There are shortages due to drought
D. There is the existence of opportunity cost
2. In a free market economy, the question of “how to produce” is answered through
A. Government directives
B. The use of lattest technology
C. A combination of capital and labour
D. The least cost combination of capital and labour
3. The principal-agent principle mainly expresses itself through
A. Economic failure
B. Government failure
C. Information failure
D. Market failure
4. The diagram shows two production possibility frontiers, JK and PQ, before and after
technological process has taken place.
After technological progress, what was the change in capital goods if OX consumer
goods are produced?
A. MN
B. XN
C. YM
D. YQ

5. The table below shows estimates of own-price and cross elasticities of demand for
margarine and jam.
Elasticity with respect to price of

Commodity Margarine Jam
Margarine - 0,48 +0,18
Jam +0,14 -0,57
Other things being equal, what will be the change in the quantity of jam demanded as
a result of a 1% increase in the price of margarine?
A. – 0,14
B. – 0,18
C. + 0,14
D. + 0,18
6. In a free market economy, firms will
A. Produce at efficient levels

B. Overproduce public goods
C. Overproduce goods with negative externalities
D. Underproduce goods with negative externalities
7. A Pareto efficient allocation is one such that
A. Both individuals can be made better off through trade

B. No one can be made better off except at the expense of another
C. No other allocation could increase anyone’s utility level
D. Each person’s indifference curve is parallel to the contract curve
8. The relationship between a firm’s output and the quantities of factor inputs it employs
is shown by
A. Productive efficiency
B. Returns to scale
C. The production function
D. The average cost function

9. The diagram shows the demand and supply in the market for chickens.
The change from X1 to X2 illustrated in the diagram is consistent with a
A. Strike by market porters

B. Rise in the price of beef
C. Fall in disposable incomes
D. Rise in the factor costs involved in producing chickens
10. In an economy, resources are allocated through the following except
A. Carrying out surveys

B. Cost benefit analysis
C. Self interest motive
D. Societal interest motive
11. Which of the following does not shift the supply curve?
A. Development of new technology

B. Consumers buying more of a product
C. A rise in the wages paid to workers
D. A decrease in the number of suppliers
12. What would a socially efficient tax on alcohol achieve?
A. Eliminate alcohol consumption

B. Maximise government revenue
C. Reduce alcohol consumption to an optimal level
D. A neutral effect on consumption and production of alcohol

13. The price of a product rises from $18 000 to $22 000 and demand falls from 4 000 to
3 000. Calculate the coefficient of the price elasticity of demand.
A. 1.125
B. 0.4
C. 0.75
D. 1.25
14. The two main factors affecting elasticity of supply are
A. Supply and demand

B. Price and quantity
C. Cost and revenue
D. Availability of inputs and time
15. The diagram shows a shift of a consumer’s budget line from EF to PQ.
Regardless of any other changes that might occur, which of the following statements
is correct? There has been
A. An equal proportionate decrease in the price of Good A and B.

B. An equal proportionate increase in the price of Good A and B.
C. A decrease in the consumer’s real income
D. A increase in the consumer’s nominal income

16. Equilibrium price include
A. Bid prices by buyers

B. Price catalogue of products on offer
C. Transaction prices that leave no shortage or surpluses
D. Prices at which there is excess supply
17. Economic profit is
A. Total cost
B. Total revenue minus explicit cost
C. Total revenue minus implicit cost
D. Total revenue minus explicit and implicit cost
18. Which of the following is not a valid reason for government intervention in an
economy.
A. Market failure
B. Monopoly regulation
C. Divergence between social costs and private costs
D. Profiteering in provision of demerit goods
19. The diagram below represents the revenue and cost conditions faced by a profit-
maximising firm. It indicates tha the firm is earning.
A. Normal profit
B. Supernormal profit
C. Economic profit and will continue in production in the short run.
D. Less than normal profit and will continue to produce in the short run.

20. In which of the following industries A, B, C and D will an increase in wages cause
most unemployment, other things being equal?
Industry Price of elasticity of

demand for the product
A 0,4
B 1,0
C 1,2
D 2,0
21. An excise duty imposed on a single commodity falls entirely upon the consumer if the
A. Demand curve is of unitary elasticity

B. Demand curve is perfectly elastic
C. Supply curve is of unitary elasticity
D. Supply curve is perfectly elastic
22. A perfectly contestable market is when
A. Marginal costs are zero

B. Products are homogenous
C. Costs of entry by new firms are zero
D. No abnormal profits are realised in the long run
23. By saying a good has utility, it means
A. It is very useful
B. It has power to satisfy a want
C. It is not socially undesirable
D. Something has to be given up inorder to possess it
24. The demand for a good is elastic if
A. Demand for that good increases when the price falls

B. Total expenditure on the good decreases as price rises
C. A price fall produces a decrease in total expenditure on that good
D. A price fall produces a less than proportionate rise in the quantity demanded
25. If the price elasticity of demand for a product is less than 1, then a firm can increase
its revenue by
A. Increasing its price

B. Decreasing its price
C. Improve packaging
D. Advertising to develop brand loyalty

26. From the table, in which price range is demand for the good K inelastic?
GOOD K
Price $ Quantity Demanded
12 250
11 450
10 500
9 600
8 650
A. $12 - $11
B. $11 - $10
C. $10 - $ 9
D. $ 9-$ 8
27. A firm in perfect competition currently sells 100 units at $15 each.
What will be the revenue obtained by the firm if it increases its price to $20?
A. $0
B. $ 100
C. $ 1 500
D. $ 2 000
28. Which of the following is a source of market failure?
A. Improved transport
B. Collusion of firms
C. Presence of perfect knowledge
D. Prevalence of external benefits
29. Cost push inflation is caused by
A. An increase in trade unionism

B. An increase in bank lending
C. An increase in the supply of inputs
D. An increase in demand for a country’s exports
30. Which of the following does not increase economic growth in Zimbabwe?
A. Indigenisation
B. Industrialisation
C. Land reform
D. Limiting trade with South Africa

31. The diagram shows the initial cost and revenue curves of a monopoly.
What would be the firm’s profit maximising quantity if the government fixes the
proces at OP?
A. OJ
B. OK
C. OL
D. OM
32. The diagram shows the cost and revenue curves of an oligopolistic firm.
What is the firm’s objective if it produces output OX?

A. To maximize profit
B. To achieve normal profit
C. To achieve productive efficiency
D. To achieve allocative efficiency

33.
In the diagrams above, an inflationary gap is demonstrated by
A. (i) and (iii)

B. (ii) and (iv)
C. (ii) and (iii)
D. (i) and (ii)
34. The diagram below relates to a firm operating in a perfectly competitive industry.
At which level of output A, B, C and D does the firm maximise profit?

35. At full employment, which policy is most suitable for controlling inflation?
A. Restricting imports
B. Increasing tax rates
C. Increasing exports
D. Increasing personal tax allowances
36. The diagram below shows the revenue and cost curves of a monopoly.
Which one is the profit maximising price?
A. OD
B. OC
C. OB
D. OA
37. In which period is elasticity of supply equal to zero?

A. The short run
B. The momentary period
C. The long run
D. The very long run
38. How can a firm increase its profits if the elasticity of demand for its product is less
than 1?
A. By decreasing its price

B. By increasing its price
C. By advertising to develop brand loyalty
D. By improving its packaging

39.
Using the diagram above, if the industry is monopolised and demand and costs of
production remain unchanged, what is the maximum monopoly profit?
A. $15 000
B. $ 25 000
C. $ 50 000
D. $ 75 000
40. Which diagram shows a monopolistic firm in long run equilibrium?

41. The diagram below shows the long-run position of a firm.
Output
At which price does the firm earn normal profit?
A. OD
B. OC
C. OB
D. OA
42. The diagrams below show total revenue curves for four different firms (A, B, C and
D).
Which firm is producing under conditions of perfect competition?
43. Black markets are associated with price
A. Floors and the resulting product surpluses

B. Floors and the resulting product shortages
C. Ceilings and the resulting product shortages
D. Ceilings and the resulting product surpluses

44. The diagram shows the monopolist’s demand and marginal cost curves.
Excess capacity is shown by

A. Q2-Q1
B. Q3-Q2
C. Q4-Q2
D. Q3-Q1
45. The diagram below shows the cost curves of a firm.
At P1 the firm
A. Incurs an economic loss

B. Incurs normal profits
C. Is operating at full capacity
D. Should shut down

46. A profit maximising will always produce at point
A. S
B. T
C. P
D. Q
47. The diagram below relates to a monopolistic competition operating in the short
run.
Total profits are shown by the area.

A. P0P1wx
B. P0P2yx
C. P1P2yw
D. OqyP2
48. The demand for Zimbabwe dollars on the foreign currency market increases when
A. Exports increase
B. Imports increase
C. Locals go on holiday abroad
D. Scholarships are given by a local trust fund to study abroad

49. A firm in perfect competition faces the following cost and revenue conitions.
The shutdown price of the firm is
A. OD
B. OC
C. OB
D. OA
50. A producer wishes to increase total revenue by reducing price
Price Total Revenue

20 1 000
15 1 000
10 1 000
The results show that price elasticity of demand is
A. Unitary
B. Perfectly elastic
C. Perfectly inelastic
D. Relatively elastic
51. The condition that would cause a perfectly competitive firm to shut down in the short
run is when price
A. Equals marginal cost

B. Equals marginal revenue
C. Is less than marginal cost
D. Is less than average variable cost

52. In the shortrun, the total revenue of a firm must cover
A. Fixed costs
B. Variable costs
C. Total costs
D. Marginal costs
53. Consumer’s surplus will be zero when price elasticity of
A. Demand is infinity
B. Supply is zero
C. Supply is infinity
D. Demand is zero
54. Allocative effiency is improved by changing
A. Relative prices
B. Rate of growth
C. Rate of inflation
D. Average level of prices
55. The information relates to a firm’s costs.

$
Average total costs 1 000
Total variable costs 72 000
Average fixed costs 200
The firms’s output is

A. 60 units
B. 72 units
C. 80 units
D. 90 units
56. A deflationary gap is measured using the
A. Rate of deflation
B. Rate of unemployment
C. Increase in injections needed to reach full employment
D. Increase in withdrawals needed to reach full employment

57. The information below relates to a closed economy.
C = 0,6y + $100 bn
I = $200 bn
G = $150 bn
What is the value of the multiplier?

A. 0,4
B. 1
C. 2,5
D. 4
58. A dentist earns $185 per week, but he would be willing to carry on working in hi firm
for up to $65cper weekless. Therefore $120 is his level of
A. Economic rent
B. Transfer earnings
C. Transfer payments
D. Producer’s surplus
59. In an open economy Consumption (C) = $ 80 m

Investment expenditure = $ 20 m
Government final expenditure = $ 20 m
Exports = $ 20 m
Inputs = $ 20 % of consumption
What is the level of gross domestic product?
A. $104 m
B. $112 m
C. $120 m
D. $124 m
60. Minimum prices lead to
A. Shortages in the economy

B. A reduction in output
C. Creation of buffer stocks
D. Creation of black markets

61. The information below relates to an economy’s national income accounts.
$ million
Total government expenditure 200
Taxation on companies 100
Total personal income 400
Transfer payments by government 110
Private consumption 350
What is the government’s expenditure on goods and services?

A. $ 70 m
B. $ 90 m
C. $100 m
D. $200 m
62. In a closed economy aggregate demand is made up of consumption, government

spending on goods and services. At any level of income (Y), consumption is given by
C = 100 + 0,75 Y.
If government increases its expenditure by $100 million, national income will
increase by
A. $ 100 m
B. $ 175 m
C. $ 275 m
D. $ 400 m
63. Crowding out effect suggests that an increase in government borrowing causes a
decrease in
A. Private sector borrowing

B. The money supply
C. The rate of interest
D. The rate of income tax
64. The following goods illustrate market failure except
A. free goods
B. public goods
C. merit goods
D. private goods

65. The table below shows a student’s demand schedule for freezits.
Price (cents) 100 70 50 20

Freezit 1st 2nd 3rd 4th
If the freezit market price is 20cents, what is his consumer surplus if he buys 2
freezits?
A. 20 cents
B. 40 cents
C. 130 cents
D. 170 cents
66. The schedule below shows the prices a producer is willing to accept for successive
units of a good.
Unit price ($) 6 7 8 9 10 11 12

Output (units) 1 2 3 4 5 6 7
If the market price is $10 per unit, what is the producer’s surplus?
A. $10.00
B. $12.50
C. $37.50
D. $50.00
67. Deflation involves
A. decreasing domestic interest rate

B. decreasing level of money supply
C. increasing government expenditure
D. increasing taxes
68. Forms of near money include the following except
A. coupons
B. treasury bills
C. credit cards
D. fixed accounts deposits with Building Societies

69. The gross domestic product [GDP] in a four sector economy is $3 452, government
purchases are $1 865, consumer expenditure is $2 343 and gross investment is $1 379.
The figures are in million dollars.
What is the level of net exports?
A. +$93
B. +$123
C. - $45
D. - $2 135
70. The diagram below relates to supply and demand for labour.
The shaded area represents
A economic rent
B producer surplus
C quasi-rent
D transfer earnings
71. An economy has the following figures on its balance of payments account.
$(m)
Current account -1 100
Capital account +1 500
Balancing item +400
The official financing is
$(m)
A. +400
B. +800
C. - 400
D. - 800

72. What is the market value of all final goods and services produced in the economy in a
given year?
A. Net National Product

B. National Income
C. Gross Domestic Product
D. Gross National Product
73. A country’s demand curve for imports is inelastic. Import prices rise by 5% while
export prices decrease by 5%. The country’s Terms of Trade (TOT) will
A. Increase by 5%
B. Decrease by 5%
C. Increase by 10%
D. Decrease by 10%
74. A new deposit of $1 billion is placed in a bank. The cash ratio is 20%.
How much does the money supply increase by assuming that there are no leakages?
A. $1 billion
B. $5 billion
C. $10 billion
D. $20 billion
75. The consumption function for a closed economy with no government sector is
C= $400 + 3/4Y. At what level of national income will savings be equal to zero?
A. $1 600m
B. $1 000m
C. $800m
D. $500m
76. The current account in the balance of payments includes
A. Foreign aid
B. Hot money flows
C. Net property income from abroad
D. Transfer of ownership of fixed assets
77. Which of the following would cause the value of the multiplier to be reduced?
A. An increase in consumption
B. An increase in government expenditure
C. An increase in the volume of exports
D. An increase in the rate of taxation

78. The following data is taken from a countrys’s national income accounts.
$m
Total domestic expenditure at market prices 200
Exports 48
Imports 52
Indirect taxes 40
Net Propert Income from abroad +2
Depreciation (capital consumption) 20
The value of net national product is

A. $142
B. $178
C. $182
D. $222
79. At full-employment which policy is most suitable for controlling inflation?
A. Restricting imports
B. Increasing tax rates
C. Increasing exports
D. Increasing personal tax allowances
80. A capital inflow in the balance of payments may cause
A. A deficit on the current account

B. A rise in the exchange rate
C. A rise in the inflow of dividend payments
D. A rise in the outflow of hot money
81. If consumer expenditure is $30 billion, government expenditure is $10 billion,

investment is $20 billion, exports are $16 billion and imports are $20 billion, what is
the GDP?
A. $56 billion
B. $76 billion
C. $80 billion
D. $96 billion
82. Which policy reduces economic growth at the same time increasing the level of
economic development? A policy to
A. Promote export growth

B. Improve good governance
C. Reduce environmental degradation
D. Improve the quality of health care

83. Which of the following is a measurable correlation in economics?
A. Income and expenditure

B. Income and height
C. Price of bread and weather
D. Price of sugar and price of petrol
84. From the table below, which country is likely to be least developed?
Country Population Real GDP ($m) Life Expectancy

(millions) (Years)
A 100 600 58
B 200 2 000 70
C 300 2 100 58
D 400 3 600 70
85. Which of the following may offset a current account deficit?
A. Merchandise trade surpluses

B. Merchandise trade deficits
C. Capital account surpluses
D. Capital account deficit
86. The information below relates to an economy.

$m
Consumption 600
Government 400
Investment 400
Exports 500
National income 1 800
What is the value of net exports?
A. $100 million
B. $300 million
C. $400 million
D. $500 million
87. What is the purpose of the statistical discrepancy on the balance of payments
accounts?
A. To ensure that the sum of all debits equal to the sum of all credits
B. To ensure that imports equal to the value of exports
C. To obtain an accurate account of the balance of payments deficit
D. To obtain an accurate account of the balance of payments surplus

88. To reduce cyclical unemployment, the government has to increase
A. Taxation
B. Budget deficit
C. A budget surplus
D. The balance of payments deficit
89. The table shows an economy producing only guns and butter.
Year Production of Gun price Production of Butter price

guns butter
2014 600 $20 1 000 $5
2015 840 $30 1 800 $10
Given that year 2014 is the base year, calculate the real Gross Domestic Product in
2015?
A. 2 640
B. 17 000
C. 25 800
D. 43 200
90. Given that the money demand equals money supply and the balance of payments is in
equilibrium. What would lead to a balance of payment surplus?
A. A decrease in the money supply

B. An increase in the money supply
C. A decrease in the money demand
D. An increase in disposable income
91. A tax will provide some automatic stabilisation for an economy if it
A. Increases with a decrease in GDP

B. Decreases with a rise in incomes
C. Decreases with a decrease in incomes
D. Remains costant as GNP rises
92. If given Gross Domestic Prodauct at factor cost, then Gross Domestic Product at
market prices is calculated by adding
A. Net property income from abroad

B. Subsidies and subtracting taxes on expenditure
C. Taxes on expenditure and subtracting susdies
D. Government expenditure and subtracting gross investment

93. The amount of labour supplied by an employee at different wage rates is shown on the
diagram below.
Which statement explains the movement from W1 to W2?
A. The employer has induced an increase in hours worked by the employee

B. The substitution effect dominates the income effect
C. The employer has substituted capital for labour
D. The employee demands more leisure
94. The isoquant below shows combination of capital and labour employed to produce
certain quantity of output.
A movement from ‘a’ to ‘b’ will be caused by
A. An increase in the cost of capital

B. An increase in the cost of labour
C. A fall in labour productivity
D. A rise in the productivity of capital.

95. The diagram below shows the demand curve for good A. What would cause a
movement along the curve from P to Q?
A. A change in consumer tastes

B. A decrease in the demand for A
C. An increase in the production costs for A
D. A reduction in the price of a substitute
96. The table below shows the production possibilities before opening up trade to take
place.
Country 1 Country 2
Good A 16 6
Good B 48 18
What can be deduced from the table?
A. Country 2 should specialise in good A

B. Country 1 has a comparative advantage in good B
C. Engaging in trade will not benefit both countries
D. Engaging in trade will benefit Country 2 at the expense of Country 1
97. Which of the following items is not part of invisible trade?
A. Interest
B. Dividends
C. Transport
D. Beverages
98. Which policy is likely to correct a balance of payment deficit?
A. Free trade
B. Indigenisation
C. Currency devaluation
D. Nationalisation of industries

99. The table shows an economy producing goods A and B.
Good A Good B
Year
Units Price Units Price
2018 100 10 200 20
2019 500 20 1000 50
The real Gross Domestic Product (GDP) for 2019 is
A. 10 000
B. 25 000
C. 55 000
D. 60 000
100. If Gross Domestic Product (gdp) is more than gross nation product (gnp), it means
A. Investment is high.
B. There is perfect factor mobility.
C. Net property income from abroad is negetive.
D. Domestic interest rate is higher than world interest rate.
101.Which of the following does not apply to a freely floating exchange rate?
A. Investments may be discouraged due to exchange rate uncertainity.

B. Imported inflation may result as the exchange rate floats downwards.
C. A fall in the value of the domestic currency can reduce total revenue from export
sales.
D. The central bank may waste foreign reserves trying to protect the exchange rate.
102.A temporary leakage from the circular income flow could take the form of
A. Wages.
B. Salaries.
C. Depreciation reserves.
D. Distributed profits.
103.Given that mpc = 0.8 and additional G = $5 billion, the increase in National Income
is
A. $4 billion
B. $6,25 billion
C. $25 billion
D. $40 billion

104.Which one of the following is likely to be a result of inflation?
A. A rise in the volume of exports

B. A fall in the price of non current assests
C. A fall in the price of government securities
D. A fall in the transactions demand for money
105.National income is culculated by
A. Consuption production and income methods.

B. Taxation production and income methods.
C. Savings investments and consumption methods
D. Expenditure, production and income methods.
106.Which of the following might improve a country’s terms of trade?
A. Inflation
B. Currency depreciation
C. Improved productivity of export industries
D. Imposition of quotas on imported goods
107.In the diagram, SS represents the lomg run supply curve of a perfectly competitive
industry.
Which one of the following statements explains the horizontal nature of the supply
curve?
A. There are diminishing returns to scale

B. There is only one firm in the industry
C. Factor ratios are constant at all levels of output
D. Resources are available at constant prices to expand output

108.Gross National Product equals:
A. Net National Product adjusted for inflation

B. Gross Domestic Product adjusted for inflation
C. Gross Domestic Product plus net property income from abroad
D. Net National Product plus net property income from abroad
109.The diagram refers to the distribution of income in a country.
Which line A, B, C and D shows the most even distribution of income?
110.The table below shows incomes earned by factors of production in a year.

$
Income from employment 800 000
Income from self employment 500
Gross trading profits of companies 950 500
Gross trading surpluses of nationalised industries 4 000
Gross trading surplus of general/government enterprises 5 000
Rent 60 000
Imputed charge of consumption of non-funded capital 80 000
Stock appreciation 50 000
What is the country’s gross domestic product at factor cost?
A. $1 820 000 billion

B. $1 850 000 billion
C. $1 900 000 billion
D. $1 950 000 billion

111.Resource allocation is said to be more efficient when
A. All firms in an economy are producing at equilibrium level of output

B. Production takes place along the production possibility curve
C. Production of a good cannot be increased without reducing the production of
another good
D. Production of a good can be increased without reducing the production of another
good
112.The conditions for market equilibrium exist where
A. All marginal utilities are equal

B. Demand equals supply in all markets
C. No barriers to entry or exit exist
D. Ratios of marginal utility to price are the same for all goods
113.The opportunity cost of unemployment to society is
A. The reduction in wages due to an increase in the supply of labour

B. The value of job seekers’ allowances and other benefits paid to the unemployed
C. The output which those unemployed could have produced if they had been
employed
D. The increase in the public sector borrowing requirements arising from the fall in
tax revenue
114.Which of the following will not cause a shift in the supply curve for mutton?
A. A change in the prices of stock feeds

B. A change in the goals of the firm
C. A change in the technology of keeping sheep
D. A change in the market price of mutton
115.The data below relate to the national accounts of an economy for a givrn year.
$
Value of physical increase in stocks 8m
Gross domestic fixed capital formation 178m
Exports of goods and services 218m
Taxes on expenditure 150m
Consumer’s expenditure 588m
General government final consumption 184m
Capital consumption 110m
Imports of goods and services 250m
Subsidies 12m
What was the country’s gross domestic product at factor cost?
A. $788 m
B. $820 m
C. $926 m
D. $958 m

116.Which diagram shows the relationship between a firm’s total fixed costs (TFC) and
its level of output?
117.The gross domestic product of a country is $3 000 m and the price index is 150.
If measured using the prices of the base year of the price index, the country’s gross
domestic product is
A. $ 2 000 m
B. $ 4 500 m
C. $ 300 000 m
D. $ 450 000 m
118.To increase the labour force from 20 to 21 workers, an entrepreneur is forced to

increase the daily wage rate from $30 to $31.
What is the marginal cost of labour per day?
A. $1
B. $21
C. $31
D. $51

119.Assuming that C=0.5 Y, I= 100, G=140, X= 60 and imports are 10% of GDP, then
equilibrium GDP equals
A.500
B.600
C.750
D.790
120.What is the argument against the flexible exchange rate as compared to the fixed
exchange rate?
A. Wider interest rate fluctuations will be required

B. Reserves will be lost if demand for exports falls
C. Inflation will be continuosly imported from other countries
D. Exporters are less certain of the prices at which they will be able to market their
products
121.What will be the likely effects on interest rates and bond prices of an increase in the
demand for money?
Interest rates Bond prices

A Fall Fall
B Fall Rise
C Rise Fall
D Rise Rise
122. National Product equals:
A. Gross National Product adjusted for inflation

B. Gross Domestic Product adjusted for inflation
C. Gross Domestic Product plus net property income from abroad
D. Gross National Product minus depreciation
123.What is the difference between a customs union and a free trade area?
A. The customs union has a common external tariff with the rest of the world
B. The custom union requires fixed exchange rates among member countries
C. The free trade area needs to eliminate tariffs among member countries
D. The free trade area requires freedom of movement for labour and capital among
member countries
124.Economists who favour supply side policies would tend to support the government
playing
A. No role in the economy

B. A reduced role in the economy
C. An expanded role in the economy
D. A role in monetary policies

125. GDP measures:
A. A country's income
B. A country's wealth
C. Consumer spending
D. Net trade income
126.The diagram relates to a monopolist firm whose objective is to maximise output

whilst still making normal profits.
Which level of output wiil the firm produce?
A. OA
B. OB
C. OC
D. OD
127.If a reduction in the unemployment rate is accompanied by a reduction in income

inequality, then
A. Full employment and greater income inequality are conflicting goals

B. Full employment and greater income inequality are compatible goals
C. Reduced income inequality is a more important than achieving full employment
D. Achieving full employment is a more important goal than reducing income
inequality.

128.To adjust GDP from market prices to factor cost:
A. Add indirect taxes

B. Subtract subsidies
C. Deduct indirect taxes and deduct subsidies
D. Deduct indirect taxes and add subsidies
129.The diagram relates to the production of a good with significant external costs.
Which price would maximise net social benefit?
130.The table shows costs of producing a unit of food and a unit of clothing in Zimbabwe
and Zambia expressed in their respective currencies.
Country Food Clothing

Zimbabwe $2 $4
Zambia K1 K1
The exchange rate is fixed at K1 = $3
What level of transport cost per unit of each commodity would exactly eliminate the
benefits of trade?
A. K 0,10
B. K 0,33
C. K 0,50
D. K 1,00

131.To adjust from Net National Product to Gross National Product:
A. Add depreciation
B. Deduct indirect taxes
C. Add subsidies
D. Add inflation
132.The following infirmation relates to Zimbabwe’s balance of payments for 1980?
$ millions
Visible trade – 1 175
Net visibles + 1 429
Current balance + 254
Investment and other capital flow – 2 227
Balancing item + 847
What was the balance for official financing for the year?
A. $847
B. $1 126
C. $3 532
D. $4 404
133. A higher GDP per capita may not mean that the quality of life has really improved
because:
A. It measures wealth not income

B. It measures Gross Domestic Product
C. It does not measure the quality of the items produced
D. It is only measured every five years
134.Cost push inflation can be accelerated as a result of
A. A general increase in rates of VAT

B. Higher money wages reflecting increases in productivity.
C. An increase in the level of gold reserves
D. Government decisions to limit production of non-essential goods
135.Which of the following factors can cause demand-pull inflation?
A. A sharp increase in unemployment

B. An increase in income tax
C. A steep reduction in direct taxation
D. A fall in consumption expenditure

136.Which characteristic applies to a mixed economy?
A. It is partly run by government and partly run by individuals

B. Prices are determined by forces of demand and supply
C. The price mechanism alone allocates resources
D. Goods are produced for everyone in the society
137.Allocative efficiency is realised when
A. The economy is operating at minimum cost

B. A gain by one does not diminish others’ welfare
C. Society gets as much from production as it puts in
D. The economy is operating at the production possibility curve
138.What is effective demand for paraffin?
A. Amount of paraffin a consumer is willing to buy at any given price

B. Amount of paraffin a producer is willing to sell at any given price
C. Desire to buy paraffin backed by the ability to do so
D. Desire to buy paraffin through rationing using coupons
139.Which period is the shortest in economic theory?
A. Short-run period
B. Momentary period
C. Long-run period
D. Very long-run period
140.In the Keynesian liquidity preference theory, liquidity trap occurs when
A. Interest rates are negative

B. Price of securities is low
C. Supply of money is perfectly inelastic
D. Demand for money becomes perfectly interest elastic
141.Frictional unemployment can be reduced by
A. Banning retrenchments
B. Training job seekers
C. Increasing unemployment benefits
D. Availing information on jobs available to prospective job seekers

142.Which of the following is not a monetary policy instrument?
A. Interest rate
B. Open market operations
C. Changes in government taxation
D. Changes in banks’ liquidity ratio
143.The following are supply side policies measures expect
A. Improved quality of labour

B. Privatisation and deregulation
C. Increased government expenditure
D. Reduction in trade union power
144.To reduce cyclical unemployment, the government has to increase
A. Taxation
B. Budget deficit
C. A budget surplus
D. The balance of payments deficit
145.The disadvantage of land reform programme is that it lead to
A. Creation of employment
B. Economic empowerment of the country’s citizens
C. An increase in the output from the farms
D. The destruction of vegetation and disturbance of natural ecosystems
146.In a banking system, the cash reserve ratio is maintained at 10%. One commercial
bank received a deposit of $100. What will be the final increase in deposits withiun
the system?
A. $1 000
B. $190
C. $100
D. $10
147.What influences the speculative demand for money?
A. Value of current transactions

B. Productivity of capital
C. Expected level of interest rates
D. Frequency with which income payments are made

148.Below are the supply and demand curves for agricultural products in an economy.
Minimum prices lead to
A. Shortages in the economy

B. A reduction in output
C. Creation of buffer stocks
D. Creation of black markets
149.The diagram below shows leakages and injections in a closed economy that has a
marginal propensity to save of 0.2 and a marginal propensity to tax of 0.2.
By how much should injections be reduced to achieve equilibrium at full employment

level?
A. $40
B. $50
C. $100
D. $150

150.Study the graph below and answer the question that follows.
When a firm is operating at point X in the short run, it is most likely going to
A. Shutdown because it cannot cover its average total cost

B. Continue in business because it is operating at profitable levels
C. Continue in business because it is able to cover its average variable cost
D. Either shut down or continue in business because it is operating at the operating at
the shutdown point.
151.Which of the following diagrams on market structures represents both efficiciency

and profitability conditions being met?

152.In the diagram below 1C1 and 1C2 are indefference curves and AB, CD and AE are
budget lines.
Which movement represents an income effect of a price change of Good Y?

A. a to b
B. a to c
C. b to c
D. a to b to c
153.Liquidity preference refers to
A. The community’s preference for a gold backed currency

B. The community’s effective demand for capital goods
C. The bank’s insistence on collateral security from business borrowing
D. The extend to which investors prefer to keep their assets as money
154.A favourable movement in the terms of trade implies that the
A. Currency has been devalued

B. Prices of exports have increased
C. Visible trade balance has improved
D. Balance of payments has improved
155.Which is a normative economic statement?
A. Money is the least liquid form of wealth.

B. Some firms are subsidised by the government.
C. Some workers earn more than others.
D. Taxes are the best way to discourage smoking.

156.Adbel’s demand for movies is as follows:
Ticket price Number of

tickets
$ demanded
4 000 4
6 000 3
8 000 2
10 000 1
12 000 0
Suppose the actual price is $4 000, how much consumer surplus would Adbel enjoy?
A. $ 4 000
B. $16 000
C. $24 000
D. $40 000
157.What is correct about scarcity?
A. Scarcity affects low income earners only.

B. Scarcity forces individuals to make choices.
C. Scarcity is removed by periods of falling prices.
D. Scarcity will be abolished by advances in technology.
158.Which of the following areas A, B, C and D shows welfare loss due to

uderproduction of a commodity?
159. Which labels might be used on a production possibility curve diagram?
Y (vertical) axis X (horizontal) axis

A capital input labour input
B cost of production quantity produced
C output of rice labour input
D output of rice output of sugar

160. A good’s defining quality is that its consumption by one person prevents its
consumption by someone else.
How is this good classified?
A. a free good
B. a non-excludable good
C. a non-rival good
D. a private good
161.What are most likely to be disadvantages found in a market economy?
A. economic growth and state-owned companies

B. merit goods and free competition
C. public goods and economic specialisation
D. unemployment and external costs
162.The basic economic problem is that
A. Resources are limited in supply

B. There is a problem of poverty
C. There are shortages due to drought
D. There is the existence of opportunity cost
163.The price of a ticket for an international athletics tournament was $50. All tickets
were sold.
Which area on the diagram represents consumer surplus?

164. What is not a function of the price mechanism?
A. to act as a signal to firms when allocating resources

B. to maximise consumer surplus
C. to provide an incentive to firms to produce goods
D. to ration scarce resources
165. A government introduces a maximum price above the market price.
What will be the effect on consumer and producer surplus?
consumer surplus producer surplus

A fall rise
B rise fall
C rise unchanged
D unchanged unchanged
166.A government increased a specific tax on shoes. The resulting increase in the price of
shoes was paid mainly by the consumer and not by the producer.
What must be true for this to happen?
A. The price elasticity of demand was less than the price elasticity of supply.
B. The price elasticity of demand was unitary.
C. The price elasticity of supply was less than one.
D. The price elasticity of supply was inelastic while the price elasticity of demand
was elastic.
167.The diagram shows supply and demand for a good. The original equilibrium is X.
What will be the new equilibrium if subsidies are given to firms for new machinery?

168.Why might governments provide free education for children aged 4 to 16 years old?
A. Consumers are not fully aware of the benefits of education.

B. Education in a free market system would be over consumed.
C. Education is a public good and there would be many free riders.
D. The private costs of education exceed the private benefits in a free market.
169.In a free market economy, firms will
A. Produce at efficient levels

B. Overproduce public goods
C. Overproduce goods with negative externalities
D. Underproduce goods with negative externalities
170.A Pareto efficient allocation is one such that
A. Both individuals can be made better off through trade

B. No one can be made better off except at the expense of another
C. No other allocation could increase anyone’s utility level
D. Each person’s indifference curve is parallel to the contract curve
171.The principal-agent principle mainly expresses itself through
A Economic failure
B Government failure
C Information failure
D Market failure
172.Opportunity cost means
A The price of a good in terms of the price of the other good

B The price of a good in terms of the best alternative forgone
C The price of one good in terms of the other in barter trade
D The time lost in costing goods and services
173.Which aim would be consistent with a government’s decision to buy its own currency
in foreign exchange markets?
A. an appreciation under a freely floating exchange rate system

B. an appreciation under a managed float exchange rate system
C. a depreciation under a fixed exchange rate system
D. a devaluation under a managed float exchange rate system

174.The graph below shows short run production for a competitive firm.
At which point A, B, C and D does the firm achieve productive efficiency?
175. The diagram shows an initial market equilibrium for an agricultural product of $6
and 800 units.
How much will the government have to spend to increase the market price to $10?
A $1600 B $2400 C $3200 D $4000
176.What would be increased by an expansionary fiscal policy?
A budget deficit
B exchange rate
C money supply
D rate of direct taxation

177. The table identifies items of government annual spending.
$ million
army pay 35
civil servants’ salaries 125
farming subsidies 15
pension payments 75
welfare benefits 50
What is the total government expenditure on transfer payments?
A $50 m B $125 m C $175 m D $300 m
178.The diagram shows the original aggregate demand curve, AD1, and original
aggregate supply curve, AS1. The original equilibrium is at X.
What would cause the new equilibrium to be at Y?
A. an increase in export prices

B. an increase in government spending on education
C. an increase in import prices
D. an increase in the money supply
179.Which is closest to being a public good?
A. electricity
B. health services
C. street lighting
D. water supply

180. The table indicates the factor inputs required to produce wheat and cars in countries
X and Y.
What makes it possible for both countries to benefit from trade?
A. Country X has an absolute advantage in wheat and car production.

B. Country Y has an absolute advantage in wheat and car production.
C. Country Y has a comparative advantage in wheat production.
D. Opportunity cost of wheat and car production is the same between countries.
181. The tables show changes over a period in the average prices of a country’s exports
and imports.
They are expressed as index numbers, with year 0 as 100.
What is the change in the country’s terms of trade index between years 1 and 2?
A. It improves by about 10%.
B. It improves between 4% and 5%.
C. It stays the same.
D. It worsens between 4% and 5%.
182. Which policy would assist in reducing a deficit within the balance of payments?
A. increasing interest rates

B. increasing the money supply
C. reducing subsidies to exporting industries
D. reducing the level of direct taxation
183.What causes an inelastic market supply curve for an agricultural crop such as wheat?
A. a government decision to import crops at times of shortage

B. an efficient use of fertilisers causing crop production to rise
C. the storage of excess production for future sale
D. the very long time required to produce additional output

184.An individual has an appointment with his dentist.
He has a choice between travelling to the appointment by car, or leaving the car at
home and travelling by bus and then by train. The costs of the journey are given
below.
$
bus fare 2
train fare 3
car parking charge 4
petrol 2
car wear and tear costs 1
Given this information, what is the opportunity cost to the individual of travelling by
car rather than by bus and train?
A $2 B $4 C $7 D $12
185. In the diagram the original production possibility curve is LM.
What could cause the curve to shift to NP?
A. a fall in the working population

B. a reallocation of resources from consumer goods to capital goods
C. an increase in output per worker
D. an increase in unemployment
186.A temporary leakage from the circular income flow could take the form of
A. Wages.
B. Salaries.
C. Depreciation reserves.
D. Distributed profits.

187.The diagram shows the supply curve for bananas.
What is the price elasticity of supply when there is a rise in price from $5 to $6?
A –2.5 B +0.4 C +2 D +2.5
188. A government decides to put a tax on a good.
Which price elasticity conditions would result in most of the tax being paid by the
consumer?
demand supply
elasticity elasticity
A elastic elastic
B elastic inelastic
C inelastic elastic
D inelastic inelastic
189.What is most likely to decrease if the government pays a subsidy to the producers of
a product?
A. government spending
B. output of the product
C. price of the product
D. rates of taxation
190.Which statement is not correct?
A. A progressive tax usually improves the distribution of income.

B. A regressive tax benefits the rich more than the poor.
C. An ad valorem tax causes a parallel shift left of the supply curve.
D. Some consumers can avoid paying indirect tax.

191.The table below shows the expected costs and benefits from four government
projects. Due to scarce resources, the government can afford only one project. Which
is project is the government likely to choose?
Private External Private External

benefits benefits costs costs
$million $million $million $million
A 20 180 40 50
B 40 140 80 5
C 80 190 80 100
D 130 70 100 120
192.From the table below, which country is likely to be least developed?
Country Population Real GDP ($m) Life Expectancy

(millions) (Years)
A 100 600 58
B 200 2 000 70
C 300 2 100 58
D 400 3 600 70
193.Which change is most likely to result in a worsening of a country’s balance of

payments?
A. a reduction in remittances from citizens who work abroad

B. a rise in domestic rates of direct taxation
C. an expansion in the economy of a major trading partner
D. an increase in domestic interest rates
194.What must be true if an economy is experiencing inflation?
A. Aggregate demand is increasing.

B. Aggregate supply is decreasing.
C. The interest rate is increasing.
D. The real value of money is decreasing.
195.An economy experiences cost-push inflation.
Which combination of policies would be best for the economy to use to reduce cost-
push inflation?
exchange rate supply-side policy
A appreciate lower minimum wage
B appreciate raise minimum wage
C depreciate lower minimum wage
D depreciate raise minimum wage

196. The diagram shows the market supply and demand curves for wheat.
What should a government do to maintain a minimum price of OP2?
A. buy quantity KL
B. buy quantity KR
C. sell quantity LR
D. sell quantity KR
197.Under which conditions will an appreciation of a floating exchange rate cause the
current account of the balance of payments to worsen the most?
price elasticity of price elasticity of

demand for imports demand for exports
A 0.4 0.4
B 0.4 0.6
C 0.6 0.4
D 0.6 0.6
198. A government reduces the rate of tax firms are charged on their land and buildings.
How is this likely to affect the economy’s price level and real output?
price level real output

A fall fall
B fall rise
C rise fall
D rise rise

199. A government adopts a more expansionary fiscal policy and a more deflationary
monetary policy.
Which combination of changes in policy instruments is consistent with this?

government
expenditure taxation interest rate
A decrease decrease decrease
B decrease increase decrease
C increase decrease increase
D increase increase increase
200. Some multinational oil companies extracting oil in developing countries are now
required to repair the damage they do to the environment.
Which best describes the total costs incurred by the oil companies in such
circumstances?
A. external costs
B. private costs plus external costs
C. social costs plus external costs
D. social costs plus private costs
201. In an economy, no one can be made better off without making someone else worse
off.
What does not necessarily follow from this?
A. The conditions for allocative efficiency have been met.

B. The conditions for productive efficiency have been met.
C. The distribution of income is socially acceptable.
D. The economy is operating at a point on its production possibility curve.
202. A government decided to approve a road building scheme because it was socially
beneficial. In making its decision it calculated private costs at $800m, private
benefits at $800m and external costs at $150m.
What must have been true about the external benefits of the scheme?
A. External benefits equalled private benefits.

B. External benefits exceeded external costs.
C. External benefits exceeded $200m.
D. There were no external benefits.
203. What is it called when a consumer’s marginal utility is greater than the price paid for
the good?
A. a Giffen good
B. an inferior good
C. consumer surplus
D. producer surplus

204.The gross domestic product of a country is $3 000 m and the price index is 150.
If measured using the prices of the base year of the price index, the country’s gross
domestic product is
A. $ 2 000 m
B. $ 4 500 m
C. $ 300 000 m
D. $ 450 000 m
205. A consumer has $3 to spend each day on chocolate bars or toffee bars, which all cost
$1 each.
The table below shows the units of additional satisfaction she gets from consuming
each bar.
What should she buy to maximise her total utility?
A. 1 chocolate bar and 2 toffee bars

B. 2 chocolate bars and 1 toffee bar
C. 3 chocolate bars
D. 3 toffee bars
206.Assuming that C=0.5 Y, I= 100, G=140, X= 60 and imports are 10% of GDP, then
equilibrium GDP equals
A. 500
B. 600
C. 750
D. 790
207.In which type of market structure are commercial banks usually found?
A. perfect competition, because they all link their interest rates to that of the central
bank
B. perfect competition, because they offer identical products and services
C. monopolistic competition, because a competitive market prevents them making
excess profits
D. oligopoly, because they are affected by the actions of other banks

208. The curve JK in the diagram is a consumer’s initial budget line.
Which combination could cause the budget line to shift to GH?
price of good X consumer’s money income

A increase increase
B decrease decrease
C increase decrease
D decrease increase
209.The diagram shows a consumer’s indifference curves (IC) for goods F and G together
with the consumer’s budget lines.
What could explain the movement from X to Z on the diagram?
A. a fall in the price of G when G is an inferior good

B. a fall in the price of G when F is a Giffen good
C. a fall in the price of G when G is a normal good
D. a fall in the price of G when G is a Giffen good

210. A firm has the choice between five levels of output. The table shows the total cost
and total revenue of producing at each output level. The firm could sell whatever
output it produces.
output total cost total revenue
(units) ($) ($)
1000 8 000 10 000
2000 12 000 18 000
3000 19 000 24 000
4000 23 000 28 000
5000 25 000 25 000
The firm decides to produce 4000 units.
What is the firm’s aim?
A. to maximise profit
B. to maximise sales
C. to maximise revenue
D. to minimise average costs
211.What is a condition for operating a successful cartel?
A. a large number of firms in the industry

B. each firm has a differentiated product
C. low barriers of entry to the industry
D. strictly enforced production quotas
212. Which assumption is essential for a market to be contestable?
A. The market is supplied by a large number of firms.

B. Firms are free to enter and leave the market.
C. Firms cannot earn abnormal profits in the short run.
D. Firms produce differentiated goods.
213. What is generally associated with the principal-agent problem?
A. Directors prefer company growth to greater shareholder dividends.

B. Managers ignore workers’ concerns about safety in the workplace.
C. Shareholders determine the price of products.
D. Workers go on strike against managers’ reorganisation plans.
214.To adjust from Net National Product to Gross National Product:
A. Add depreciation
B. Deduct indirect taxes
C. Add subsidies
D. Add inflation

215. The table shows the output of chairs at a factory when different numbers of workers
are employed.
When will diminishing marginal returns to labour set in?
A. When the second worker is employed.

B. When the third worker is employed.
C. When the fourth worker is employed.
D. When the fifth worker is employed.
216.The chart gives information about the average daily wage rate for all industries in a
certain country.
What could have caused this trend in wage rates?
A. an increase in capital-intensive production

B. an increase in the number of industrial workers
C. an increase in the number of people unemployed
D. an increase in the productivity of labour
217.Which of the following factors can cause demand pull inflation?
A. a sharp increase in unemployment

B. an increase in income tax
C. a steep reduction in direct taxation
D. a fall in consumption expenditure

218. A country has a negative income tax regime.
The curve NT in the diagram shows the country’s initial tax schedule.
A change in the tax rate causes the schedule to shift to NT1.
How will this affect work incentives and the after-tax distribution of income?
work distribution
incentives of income
A strengthen less equal

B strengthen more equal
C weaken less equal
D weaken more equal
219. There is a fixed supply of skilled workers in an industry. Firms can no longer find
enough workers to meet their demand for labour.
What could be a solution to the problem?
A. Allow wage rates to fall as the market demands.

B. Introduce work-sharing and reduce working hours.
C. Make offices more attractive by adding air-conditioning.
D. Provide more training courses for new recruits.
220.What is not a source of market failure?
A. imperfect information
B. income inequality
C. monopoly
D. non-excludability

221. A government regards fresh fruit and vegetables as merit goods, and subsidises
agriculture to boost their production.
What could be a government failure arising from these subsidies?
A. cheaper fresh fruit and vegetables

B. land clearance reducing wildlife
C. lower spending on treating dietary illnesses
D. more jobs picking fruit and vegetables
222. Which type of unemployment is associated with a deficiency in aggregate demand?
A. cyclical
B. frictional
C. structural
D. voluntary
223.What represents an injection into a country’s circular flow of income?
A. corporate taxes
B. interest payments on government bonds
C. the payment of dividends to foreign shareholders
D. the repayment of bank loans
224. What will be the most likely consequence of an increase in the dependency ratio?
A. a decrease in GDP per head

B. a decrease in labour productivity
C. an increase in the labour force
D. an increase in unemployment
225. Which statement is correct?
A. Economic development is necessary for economic growth.

B. Economic growth and economic development are directly proportional.
C. Economic growth enables economic development.
D. Economic growth is always sustainable.
226. It has been estimated by the United Nations that the total external debt of
developing countries has been increasing by about $425 billion each year.
What is least likely to have contributed to this?
A. disincentives for foreign direct investment through political instability

B. increased government subsidies for the development of tourism industries
C. withdrawal of multinational companies due to delays in the award of government
contracts
D. worsening of the terms of trade with partners in developed economies

227.In the diagram, OP is the equilibrium level of income and OQ the full employment
level of income in a closed economy.
What is the deflationary gap?
A PQ B RV C TV D UV
228.The diagram shows a production possibility curve PPC1. The economy is

initially at point X.
If the economy achieves actual economic growth but not potential growth, what
would the final position be?

229. The following are four conditions sometimes attached to IMF loans to developing
countries.
Which condition would conflict with the ‘infant industry’ argument?
A. the need to allow free trade

B. the need to control inflation
C. the need to have a contractionary fiscal policy
D. the need to privatise government enterprises
230. In which exchange rate regime would the central bank of a country be best able
to pursue an independent monetary policy to control the rate of inflation?
A. a freely floating exchange rate system

B. a system where the country’s currency has a targeted value in relation to the US$
C. a system where the central bank buys and sells foreign currency at a fixed rate
D. where the country participates in a monetary union with other countries
231. What is measured on the vertical axis of the Phillips curve?
A. the rate of change of real wages

B. the rate of change of take-home pay
C. the rate of inflation
D. the rate of interest
232. Workers in poor countries are often less productive than workers using the same
technology in rich countries.
What would be most likely to remedy this situation?

A. an increase in the saving ratio in poor countries
B. increased freedom of migration from poor countries to rich countries
C. increased investment in education in poor countries
D. the removal of trade barriers imposed by rich countries on imports from poor
countries
233.The following goods illustrate market failure except
A. free goods
B. public goods
C. merit goods
D. private goods
234.Forms of near money include the following except
A. coupons
B. treasury bills
C. credit cards
D. fixed accounts deposits with Building Societies

235.The diagram below relates to supply and demand for labour.
The area OEL below the shaded part represents
A. economic rent
B. producer surplus
C. quasi-rent
D. transfer earnings
236.Deflation involves
A. decreasing domestic interest rate

B. decreasing level of money supply
C. increasing government expenditure
D. increasing taxes
237.The following table shows a breakdown of a government’s tax revenue.

$m
Income tax 80
Corporation tax 40
Customs duties 20
Value added tax 70
Inheritance tax 10
What is the total aamount of revenue received from indirect taxes?
A. $220m
B. $130m
C. $90m
D. $30m

238. What might explain an increase in the volume of a country’s imports?
A. an appreciation of the country’s exchange rate

B. an increase in the country’s tariffs
C. a recession in the country
D. a rise in the country’s rate of income tax
239. What is the most likely consequence of an increase in a country’s balance of

payments deficit?
A. an increase in the foreign value of the currency of the country

B. an increase in the level of income within the country
C. a reduction in the quantity of money within the country
D. a reduction in unemployment within the country
240.Which economic change might contribute to both cost-push and demand-pull

inflation?
A. a fall in the exchange rate

B. a fall in the interest rate
C. a rise in the productivity of industrial workers
D. an improvement in the terms of trade
241.What is meant by dumping in international trade?
A. selling products in a foreign market at a price below cost

B. selling products in a foreign market at a price below that of other firms
C. selling products in a foreign market that are of a lower quality than those of
domestic firms
D. selling products in a foreign market that are of a lower quality than those of other
foreign firms
242.The following data is taken from a countrys’s national income accounts.

$m
Total domestic expenditure at market prices 200
Exports 48
Imports 52
Indirect taxes 40
Net Propert Income from abroad +2
Depreciation (capital consumption) 20
The value of net national product is

A. $142
B. $178
C. $182
D. $222

243.The table shows an economy producing goods A and B.
Good A Good B
Year
Units Price Units Price
2011 10 10 20 20
2012 50 20 100 50
The real Gross Domestic Product (GDP) for 2012 is
A. 1 000
B. 2 500
C. 5 500
D. 6 000
244.If Gross Domestic Product (GDP) is more than Gross Nation Product (GNP), it
means
A. investment is high.
B. There is perfect factor mobility.
C. Net property income from abroad is negetive.
D. Domestic interest rate is higher than world interest rate.
245.There will be full employment without inflation if aggregate demand
A. falls below NNP

B. equals actual GNP
C. equals potential GNP
D. falls below actual GNP
246.In a country with population of 20 million, the are 9 million people employed and
1 million unemployed. Calculate the unemployment rate?
A 11%
B 10%
C 9%
D 5%
247. What are involved in the allocation of resources in a market economy?
A. factors of production and subsidies for essential goods

B. prices and choices
C. production possibilities and trade restrictions
D. unlimited wants and public goods

248. The curve JK in the diagram is an economy’s production possibility curve.
What could cause the economy to move from point M to point N?
A. a decrease in the dependency ratio

B. a decrease in the population of working age
C. an increase in the participation rate
D. an increase in the unemployment rate
249. What is the central problem for an economy?
A. to achieve maximum growth in production

B. to allocate resources between alternative uses
C. to ensure all resources are fully exploited
D. to overcome inequalities in income distribution
250. What are most likely to be disadvantages found in a market economy?
A. economic growth and state-owned companies

B. merit goods and free competition
C. public goods and economic specialisation
D. unemployment and external costs
251.Which statement about factors of production is correct?
A. All economic output requires the use of four factors of production.

B. Capital may take the form of shares in a manufacturing company.
C. Enterprise can only be found in owner-run organisations.
D. Land includes both renewable and non-renewable resources.
252.What is correct about scarcity?
A. Scarcity affects low income earners only.

B. Scarcity forces individuals to make choices.
C. Scarcity is removed by periods of falling prices.
D. Scarcity will be abolished by advances in technology.

253.The diagrams show an economy’s production possibility curve before and after a
change
What would this change indicate about opportunity cost and the production possibility
curve?
opportunity cost production possibility curve
A. switched from constant to increasing involved some increase
B. switched from decreasing to constant involved some decrease
C. switched from decreasing to increasing involved some increase
D. switched from increasing to constant involved some decrease
254.Productive efficiency is achieved when
A. a firm is producing on the lowest point of its average cost curve.

B. there are no further opportunities of substituting labour for capital.
C. all factors of production are fully employed.
D. the firm is maximizing profits.
255.Which of the following is the most suitable source of finance for a firm to acquire
machinery?
A. Bank overdraft
B. Debt factoring
C. Hire purchase
D. Trade credit
256. Which of the following is an advantage of a public limited company over a private
limited company?
A. Easy to set up.

B. More capital can be raised.
C. The firm enjoys secrecy.
D. The firms enjoys economies of scale.

257.Effective demand for a commodity refers to the
A. desire to purchase a commodity.

B. great ability to purchase the commodity.
C. need for a commodity that one wants to purchase.
D. willingness to purchase the product backed by ability to pay.
258.The cash ratio of the banking system is 12.5%. Given a deposit of $25 000 the
amount of money created in the economy is
A. 2 000.
B. 3 125.
C. 200 000.
D. 312 500.
259. Demand-pull inflation is caused by
A. an increase in indirect taxes.

B. an increase in interest rates.
C. a reduction in direct taxes.
D. a reduction in the money supply.
260.The reason for government intervention in the market is
A. existence of diseconomies of scale.

B. imbalance between buyers and sellers.
C. existence of significant economies of scale.
D. existence of negative externalities in production.
261.Other things being equal, which of the following causes the demand curve for labour
to shift to the right?
A. a rise in real wages

B. an increase in immigration
C. an increase in productivity of labour
D. a fall in the money wage rate
262.In the liquidity preference theory, the speculative demand for money is low when
bond price is
A. low and interest rate is high.

B. low and interest rate is low.
C. high and interest rate is high.
D. high and interest rate is low.

263.Overtime, the national rate of unemployment may fall as a result of the following
except
A. an increase in money supply.

B. an increase in the mobility of labour.
C. a reduction in state unemployment benefits.
D. a reduction in trade union restrictive practices.
264.What is the marginal propensity to consume for a closed economy with no

government sector in which investment rises by $100 resulting in real gross domestic
product (GDP) rising by$1000?
A. 0,1
B. 0,9
C. 1,0
D. 10,0
265.The sales made by a supermarket in five days were $94, $98, $86, $90 and $91. What
is the effect to the weekly mean of including Saturday’s sales of $61?
A. decreases
B. increases
C. remains constant
D. cannot be determined
266.A survey was conducted by a chocolate manufacturing firm on its products. Which
measure of central tendency helps the firm to establish the most favoured brand?
A. mean
B. median
C. mode
D. range
267.One advantage of using interviews over questionnaires when collecting data is that
A. it is less expensive.
B. it permits anonymity and may result in more honest responses.
C. it does not eliminate bias in the phrasing of the questions.
D. it is suitable for use with both literate and illiterate respondents.
268.An economic system determines
A. How a government will be established

B. The culture of society
C. The method that will be used to determine property rights
D. The method that will be used to produce goods and services

269.Economic efficiency is achieved when
A. all factors of production are fully employed.

B. all firms are producing at their Profit-maximising levels of output.
C. output of any one good cannot be increased without reducing the output of
some other good.
D. there are no further opportunities for substituting capital for labour.
270.Scarcity in economics implies that
A. there are no free goods

B. there is no net saving.
C. choices must be made.
D. an economy is underdeveloped.
271.Following an increase in output, investment increases by a certain percentage. This is

explained by the
A. multiplier effect
B. investment ratio
C. accelerator principle
D. marginal return on capital
272.An economic integration where there is free trade between member countries and all
members are obliged to operate a common external tariff on imports from non
member countries. This describes
A. a common market
B. a free trade area
C. a customs union
D. an economic union
273.One of the criticisms of the purchasing power parity theory is that it
A. does not allow for the possibility of devaluation

B. does not allow for the effect of tariffs
C. does not take into account the influence of disequilibrium in the balance of
payments
D. is difficult to compare accurately purchasing power in different countries.
274.Structural unemployment may be reduced by government action in
A. reducing short-term interest rates

B. temporarily restricting the immigration of unskilled labour
C. making grants available for the introduction of automated production
D. encouraging great occupation and geographical mobility of labour

275.The diagram below shows the domestic market for a good. With free international
trade the price is P. The country then imposes a tariff on imports of the good causing
domestic price to rise to P1.
As a result of the tariff imposition quantity of goods imported change from
A. Z to Y.
B. Z to X.
C. VZ to VY.
D. VZ to WY.
276.If two countries X and Y produce steel and coffee with the following output figures:
STEEL COFFEE
Zimbabwe 20 40
Zambia 30 70
A. Zimbabwe will export steel and Zambia will export coffee

B. Zimbabwe will sell coffee to Zambia but will not buy steel from Zambia
C. Zambia will sell coffee to Zimbabwe but will not buy steel from Zimbabwe
D. Trade will not take place between them.
277.How is expenditure by foreign tourists recorded in the Balance of Payments

Accounts?
A. a credit in the invisible account

B. a debit in the invisible account
C. a credit in the visible trade account
D. a debit in the visible trade account

278.Economic objectives trade off is explained by
A. cost benefit analysis (CBA)

B. opportunity cost concept
C. scarcity of economic resources
D. Philips curve analysis
279.Fiat money is valuable because
A. it is totally backed by gold

B. it consist of legal tender
C. it is fractionally backed by gold
D. non of the above
280.The most effective way of curbing cost push inflation would be
A. to control prices of essential commodities

B. to grant subsidies to the producers
C. to control imports
D. to limit wage increases to increase in labour productivity
281.The following goods illustrate market failure except
A. free goods
B. public goods
C. merit goods
D. private goods
282.Which of the following is not a monetary policy instrument?
A. interest rate
B. open market operations
C. changes in government expenditure
D. changes in banks liquidity ratio
283.Which of the following monetary tools would not help to fight inflation?
A. Directives to the commercial banks to restrict loans.

B. Calling in special deposits.
C. Instructing the bank of Zimbabwe to purchase more securities.
D. Instructing the commercials banks to increase their reserve asset requirement

284.The following are supply side policy measures except
A. improved quality of labour

B. privatisation and deregulation
C. increased government expenditure
D. reduction in trade union power
285.A survey was conducted by a chocolate manufacturing firm on its products. Which
measure of central tendency helps the firm to establish the most favoured brand?
A. mean
B. median
C. mode
D. range
286.As the banking industry becomes more and more automated, bank tellersare likely to
be
A. Voluntarily unemployed
B. Structurally unemployed
C. Cyclically unemployed
D. Naturally unemployed
287.Fiscal policies refers to government choices over its
A. Expenditure, foreign affairs, issuance of money and borrowing

B. Expenditure, taxes, issuance of money and borrowing
C. Expenditure, taxes, transfers and borrowing
D. Issance of money, taxes, environment regulations and foreign affairs
288.The difference between longrun and short run is that
A. A calendar time period do not vary

B. The long run has fixed costs while the short run has variable costs
C. The short run is affected by returns to scale while the long run is affected by
diminishing returns
D. The long run is when costs are variable while the short run is when costs are both
fixed and variable
289.The consumer price index is a measure of
A. Inflation
B. Gross domestic product
C. Unemployment
D. Well being

290.Which of the following is NOT a source of market failure?
A. Externalities
B. Imperfect information
C. Perfect competition
D. Public goods
291.Which of the following best describes the circular flow of economic activity?
A. Both firms and households lose money in a factor market

B. Firms earn money in exchange for goods and services in the factor market
C. Households earn money in exchange for labour in the product market
D. Households earn money in exchange for labour in the factor market
292.The table below shows production possibilities of an economy producing consumer

goods and capital goods.
Option / Production L M N O P Q
Capital goods 0 1 2 3 4 5
Consumer goods 25 24 21 16 9 0
The choice of option N rather than option M represents a
A. Choice of growth
B. Choice of less growth
C. Less efficient allocation of resources
D. More efficient allocation of resources
293.The graphs below reflect the market for eggs in relation to the cost of making fowl
run on the egg.
Which arrow A, B, C and D best indicates the cheaper, prefabricated fowl run on the
egg market?

294.The diagram below shows the demand (AR) and marginal revenue (MR) curves for a
firm.
In which segment should the firm increase price in order to maximise its profits?
A. PQ
B. PR
C. QS
D. QR
295.The table below shows the demand for petrol.
Price $ Quantity in litres

1.60 130
1.80 120
2.00 110
2.20 100
2.40 90
2.60 80
Between the prices $2,20 and $2,40, demand is
A. Elastic
B. Inelastic
C. Unit elastic
D. Perfectly elastic

296.The graph below relates to the consumption of biscuits and chocolate by a consumer.
A consumer will be expected to change consumption from point A to point B in

response to
A. A decrease in the price of packets of biscuits

B. An increase in the price of packets of biscuits
C. A decrease in the price of chocolate bars
D. An increase in the price of chocolate bars
297.The graph below shows the cost curves of a firm.
Why does the distance between curves II and III get smaller as output increases?
A. Average fixed cost is increasing

B. Average fixed cost is declining
C. Average variable cost is increasing
D. Marginal cost is increasing

298.The graph below relates to the Total Product (TP) of a firm.
At point P
A. Average product is maximum

B. Marginal product is maximum
C. Average product is minimum
D. Marginal product is minimum
299.The graph below represents a firm’s revenue and cost curves
What area represents total economic profit?
A. ABCD
B. AFTD
C. DPEM
D. BFTC

300.The graph below shows the position of a monopolistically competitive firm
In the long run
A. Average cost will rise as firms enter industry

B. Marginal cost will fall as firms exit the industry
C. Prices will fall as firms exit the industry
D. Prices will rise as firms exit the industry
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“A” LEVEL ECONOMICS

PAPER 1 QUESTIONS BOOKLET

TINOFAMBA NEVANOFAMBA Page 1

A. Resources are limited in supply

2. In a free market economy, the question of “how to produce” is answered through

3. The principal-agent principle mainly expresses itself through

TINOFAMBA NEVANOFAMBA Page 2

Elasticity with respect to price of

6. In a free market economy, firms will

A. Produce at efficient levels

7. A Pareto efficient allocation is one such that

A. Both individuals can be made better off through trade

TINOFAMBA NEVANOFAMBA Page 3

The change from X1 to X2 illustrated in the diagram is consistent with a

A. Strike by market porters

10. In an economy, resources are allocated through the following except

A. Carrying out surveys

A. Development of new technology

12. What would a socially efficient tax on alcohol achieve?

A. Eliminate alcohol consumption

TINOFAMBA NEVANOFAMBA Page 4

14. The two main factors affecting elasticity of supply are

A. Supply and demand

A. An equal proportionate decrease in the price of Good A and B.

TINOFAMBA NEVANOFAMBA Page 5

A. Bid prices by buyers

17. Economic profit is

TINOFAMBA NEVANOFAMBA Page 6

Industry Price of elasticity of

A. Demand curve is of unitary elasticity

22. A perfectly contestable market is when

A. Marginal costs are zero

23. By saying a good has utility, it means

24. The demand for a good is elastic if

A. Demand for that good increases when the price falls

A. Increasing its price

TINOFAMBA NEVANOFAMBA Page 7

28. Which of the following is a source of market failure?

29. Cost push inflation is caused by

A. An increase in trade unionism

TINOFAMBA NEVANOFAMBA Page 8

What is the firm’s objective if it produces output OX?

TINOFAMBA NEVANOFAMBA Page 9

In the diagrams above, an inflationary gap is demonstrated by

A. (i) and (iii)

At which level of output A, B, C and D does the firm maximise profit?

TINOFAMBA NEVANOFAMBA Page 10

Which one is the profit maximising price?

37. In which period is elasticity of supply equal to zero?

A. By decreasing its price

TINOFAMBA NEVANOFAMBA Page 11

40. Which diagram shows a monopolistic firm in long run equilibrium?

TINOFAMBA NEVANOFAMBA Page 12

Which firm is producing under conditions of perfect competition?

43. Black markets are associated with price

A. Floors and the resulting product surpluses

TINOFAMBA NEVANOFAMBA Page 13

Excess capacity is shown by

45. The diagram below shows the cost curves of a firm.